Spring is now very much in the air, and with the Covid restrictions behind us, many of us are starting to look forward to taking some time out for a well-needed holiday.

As an employer, you may think this is one of the more straightforward elements of management to handle, but getting holidays wrong can have a significant impact on your business, so it is worth being aware of some of the potential pitfalls and nuances.

What are the rules?

The taking of holidays (or annual leave) is governed by the Working Time Regulations 1998, which stipulates that almost all categories of workers, including agency workers, zero or irregular hour employees, are legally entitled to 5.6 weeks’ paid holiday per year, this is known as statutory leave entitlement.

In other words, an employee who works 5 days per week must receive at least 28 days’ paid annual leave per year, which can include Bank Holidays. For part-time or irregular/zero-hour workers, holidays must be calculated on a pro-rata basis based on either the number of days or hours they work per week. You can find a handy calculator to help you work all of this out on the gov.uk website.

In terms of calculating holiday pay, this is a subject which has been hotly debated in the tribunals over the last several years; with the conclusion being that an employee is entitled to be paid ‘as normal’ whilst they are on holiday. This means that as well as an employee’s basic pay, any regular payments they receive such as commission and overtime may need to be factored into your calculation; and for those employees who work irregular hours, you need to establish what their normal (average) rate of pay is.

Why do we need holidays?

Perhaps the answer to this one is obvious (sun, sea, sand and sangria if you’re anything like me!); however it is a point that some businesses fall foul of when it comes to managing their teams’ leave. The intention behind annual leave is to allow employees paid time off from work for the purpose of having regular breaks so that they can rest and re-energise.

There are two important parts to this, firstly, holidays should be taken regularly. Whilst there will always be exceptional circumstances (weddings, lifetime trips etc), you should keep an eye on your team, and encourage them to take their holidays regularly throughout the year so that they get the maximum benefit from them and avoid burning out. A good rule of thumb is to do a sense check each quarter or at mid-year to make sure your team have taken a roughly proportionate amount of their holiday.

If you are faced with a situation where an employee is just not using their entitlement, you should of course firstly talk to them about it and come up with a plan together; but you do also have the option of formally allocating annual leave for them, as long as you provide twice the amount of written notice as days’ you are requiring the employee to take (i.e. 2 days’ notice for every 1 day of leave).

The second point is that holidays should be used for resting and re-energising, so you must think very carefully before asking your employees to take time off for things which are contrary to this, such as medical appointments, caring responsibilities or bereavement, all of which should be covered by separate policies within your organisation.

Conversely, in the event that an employee’s holiday plans are disrupted by them falling sick, as long as they are able to provide medical evidence, you must allow them to take back their holiday entitlement, and take that time off as sickness absence instead.

To carry over or not to carry over

Aside from the importance of allowing and encouraging employees to take time out for the sake of their wellbeing; employers are also legally restricted in the amount of annual leave they can allow employees to either carry over from one holiday year to the next or offer to buy out. As an absolute minimum, the first 4 weeks (i.e. 20 days for a full-time employee) must be taken during the year in which it is accrued, otherwise, it will be lost. Anything over and above 4 weeks can theoretically be carried over, however, the rules around this (how much and when it needs to be used) should be made explicit in your employment contracts and/or holiday policy. Be aware also of the impact of having a lot of carried over holiday on your books, and the potential resourcing problems this could create for the following year.

There are exceptional circumstances to this: employees who are unable to take their entitlement due to being on long term sickness or family leave (maternity, paternity, adoption or shared parental leave) are entitled to carry over any outstanding holiday into the following year. You should work with your relevant team members to plan for this, for example by tagging outstanding holidays to the start or end of family leave, or mutually agreeing to take some annual leave during periods of long term sickness once sick pay entitlement has been exhausted; however, we would recommend that you seek further advice on any long term sickness cases.

Our experienced HR consultants can create the essential HR documentation needed to protect your business, which includes all the key policies you need – take a look at our ‘Brilliant Basics’ or give us a call and we’ll talk you through them,

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